Buy Coal! Deposit Markets Prevent Carbon Leakage
AbstractIf a coalition of countries implements climate policies, nonparticipants tend to consume more, pollute more, and invest too little in renewable energy sources. In response, the coalition’s equilibrium policy distorts trade and it is not time consistent. By adding a market for the right to exploit fossil fuel deposits, I show that these problems vanish and the first best is implemented. When the market for deposits clears, the coalition relies entirely on supply-side policies, which is simple to implement in practice. The result illustrates that efficiency can be obtained without Coasian negotiations ex post, if key inputs are tradable ex ante.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2992.
Date of creation: 2010
Date of revision:
Coase; climate change; carbon leakage; supply v demand side policies; trade policies; the green paradox; and environmental agreements;
Other versions of this item:
- F55 - International Economics - - International Relations and International Political Economy - - - International Institutional Arrangements
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
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